Moving through the second half of 2026, Australia and New Zealand are expected to experience subdued, uneven growth rather than broad-based expansion, according to Russell Investments’ mid-year outlook.
In Australia, higher interest rates have dampened consumer spending and confidence, while persistent productivity constraints – including the RBA’s implied ~2 per cent growth ceiling – continue to weigh on momentum and corporate earnings.
New Zealand’s outlook is shaped more by monetary policy, with a more hawkish RBNZ stance despite weak growth, inflation near target, and elevated unemployment, raising the risk of further economic softening.
Relative value opportunities are becoming clearer: Australian government bonds remain attractive and the Australian dollar is near fair value, while New Zealand equities look stretched and bonds offer better risk-adjusted returns. Overall, earnings across the region are expected to lag global peers.
Markets, however, have remained more resilient than expected despite geopolitical tensions, supply chain pressures, and interest-rate volatility. The report highlights that strong fundamentals continue to underpin a constructive global outlook, with portfolio durability and diversification remaining key themes.
“Over the past six months, investors have seen markets repeatedly pressure tested by geopolitical
tensions, policy uncertainty, and shifting economic expectations. Yet the underlying foundations of the global economy have remained intact,” the report said.
“While the conflict with Iran tested markets, the S&P 500 recovered its initial decline in less than three months and went on to reach new highs.”
US growth continues to be the main global driver, supported by fiscal stimulus, AI investment, and financial conditions. While some upside has been tempered by higher energy prices:
“Six months later, higher gasoline prices are likely to rein in some of this upside potential.”
Even so, US manufacturing activity is improving and labour markets are stabilising, while generative AI is increasingly contributing to productivity gains:
“While this is likely to be a multi-year theme, six months into 2026 we continue to see encouraging signs of its impact on productivity. Frontier models are increasingly capable, end-user demand for generative AI is strong, and there are green shoots of a new productivity cycle in the macro and microeconomic data,” the report said.
Key risks ahead include geopolitical fallout from the Iran conflict, ongoing supply chain strain, and continued interest-rate volatility.
IPOs have also become a major focus in 2026 as markets reopen after years of limited exit activity, particularly in AI-linked firms and mega-cap tech.
“Six months later, that reopening appears to be accelerating, with SpaceX’s public debut potentially marking the start of a new mega-IPO cycle that could also include OpenAI and Anthropic,” the report said.
“Investors have waited years for meaningful distributions, while private companies continued raising capital at increasingly ambitious valuations. Estimates suggest global venture funding reached a record $330.9 billion in Q1 2026, driven largely by AI-focused companies.”
Investors are watching whether new listings improve liquidity and diversification or reinforce existing concentration in mega-cap stocks:
“Over the coming months, investors should watch whether these IPOs improve liquidity and valuation discovery, how benchmark-driven demand influences trading dynamics, and whether they broaden market opportunities or reinforce existing concentration trends.”
“Investors are also looking at whether upcoming IPOs increase diversification or reduce it. Public markets have already experienced a period of extraordinary concentration, with a small number of mega-cap technology companies driving a disproportionate share of returns,” the report said.
“At first glance, the arrival of new trillion-dollar companies appears to broaden the opportunity set and increase diversification. Yet the opposite may occur. The likely beneficiaries of investor demand, passive inflows and benchmark inclusion are the same companies already attracting the largest pools of capital in private markets.”
The outlook suggests this may represent continuation rather than reversal: “Instead of capital dispersing more broadly throughout markets, investors may witness a transfer of
concentration from private markets into public markets.”
Overall, early 2026 trends show continued dominance of AI-driven earnings and capital flows, particularly in large tech firms in South Korea and Taiwan, with momentum expected to persist:
“Strong corporate earnings have also helped set the stage for mega-cap IPOs and increased private market activity over the next six months.”
